Ex-Holders Of Shell Oil Win Case

By THOMAS C. HAYES, Special to The New York Times

Published: June 21, 1990

DALLAS, June 20—
The Delaware Chancery Court has ruled that 20,000 former shareholders of the Shell Oil Company were shortchanged in 1985 when the Royal Dutch/Shell Group acquired the portion of Shell Oil it did not already own for $5.5 billion.

The ruling, issued Tuesday, found that Shell Oil had failed to disclose in proxy materials distributed to its shareholders that it held certain oil and gas reserves with a value of approximately $1 billion.

The court did not say what damages Royal Dutch/Shell, the Netherlands-based parent of Shell Oil, would be required to pay to the former shareholders. Lawyers who represented the shareholders in a class action lawsuit against a subsidiary of Royal Dutch/Shell that acquired Shell Oil said the Delaware court was expected to rule on the damages later this year.

Royal Dutch paid $58 for each of the 15 million shares held by the 20,000 shareholders early in 1985, plus an additional $2 for which the shareholders waived their right to an appraisal, after a long struggle over the fair value of Shell Oil.

Dissidents' Case Still Pending

Another group of Shell Oil stockholders owning one million of its shares refused to tender their holdings in 1985 and sued to seek the Delaware court's ruling on Shell Oil's fair market value at the time of the purchase. Trial arguments were heard in January, but the court has not ruled on the case.

In testimony on behalf of the dissident shareholders during that trial, Kurt Wulff, a Wall Street oil analyst, put the value of Shell Oil's reserves at $89 to $105 a share at the time of the Royal Dutch/Shell buyout.

Morgan Stanley & Company, the investment bank advising Royal Dutch/Shell when the offer was first made in January 1984, initially put the value at $53 a share. Royal Dutch later agreed to raise the offer twice, to $55 and then to $58 a share. Royal Dutch owned 70 percent of Shell Oil at the time, with the other 30 percent traded publicly on the New York Stock Exchange.

Shareholder Lawyer's View

Lee Godfrey, the Houston lawyer who represented the class of 20,000 former Shell Oil shareholders, said, ''We're confident the court will find the fair value of Shell Oil in 1985 should be substantially in excess of $60 a share.''

The Royal Dutch/Shell Group is one of the world's largest oil companies. Industry analysts said the damages likely to be set by the Delaware court against Royal Dutch/Shell should not cause any disruptions in the company's global operations.

They noted, however, that the ruling by Vice Chancellor Maurice A. Hartnett 3d of the Chancery Court signaled that majority shareholders would be forced to disclose more detailed information in situations where they are offering to purchase shares from minority owners.

A spokesman for Shell Oil, Mark Singer, said the company was disappointed by the Chancery Court ruling.

''The court based its decision on an inadvertent error which left out about 8 percent of the discounted future net cash flow from estimated oil and gas reserves,'' he said. He added that the cash flow figures were based on many assumptions and ''soft data.''